The first sign is that you’re not reading this on your yacht, as highly paid supermodels ply you with century old Scotch and caviar. And at our current rate of inflation, I’m guessing the money required for that lifestyle will equal the cost of one toilet roll from Giant by 2050. Here are some other signs you won’t be retiring (and what you can do about it):
1. Your Plan is Based on Age Alone
If your retirement plan is based on your age, then you’re in trouble. Successful retirement plans are usually based on figures – the kind with a $ in front of them.
One reason is that age based goals are too vague – “Retire at 62” isn’t much of a guideline. But “retire when I make $3,000 a month from my automated side-business and dividend pay-outs” is a highly specific goal you can progress toward.
If you don’t have this target number in mind e.g. “I need $X a month to retire“, then your “retirement planning” is basically a football game with no goal posts. You won’t know when to adjust your investments, when to change jobs for more income, which housing loan to pick, etc.
You need to talk to an independent financial advisor, and figure out the Income Replacement Rate (IRR) you’ll need to retire. If you’re lucky, you might reach that figure long before 62, and retire early.
2. You’re 35+ and Haven’t Invested a Cent
Let’s say you earn a middle-class income of about $3,500 to $4,000 a month. Now if you’re 35+, and you still have no investments, you’re flirting with poverty.
Singapore’s inflation rate hovers between 3% to 4%, which is already a tough number to beat – combine that with your diminishing income as you grow older, and you’re walking a financial tightrope. Don’t even worry about retiring at 62; worry about whether your diet of canned beans will sustain you as you carry on working into your 80s.
Incidentally, the CPF isn’t exactly enough to retire on. Not unless you want to spend your twilight years never travelling, never indulging your grand-kids, and writing a long book on why death is preferable to boredom.
3. You Have No Emergency Fund or Insurance
There’s no use having a retirement plan that’s derailed by a single emergency.
Over the course of 20 or 30 years, you should expect the odds to catch up with you. At some point in your life a body part will break, a job will be lost, a huge legal battle will be fought, etc. When that happens, how will you respond financially?
If the answer’s to sell all the stock you’ve been accumulating for retirement, or to remortgage your house, you can make a note to skip your 63rd birthday right now – you’ll be too busy answering client e-mails to attend.
It’s recommended that you put aside some money every month, until you’ve accumulated six months of your income in savings. This should be enough to handle most crises. As a side bonus, you won’t be afraid to quit if you have a real jerk for a boss.
4. You Don’t Know How Well Your Investments are Performing
Okay, so you’ve been wise and made multiple investments. You’ve had them for a while in fact, and you checked that your endowment policy / stock dividends / bond coupons, etc. are decent…at least at the time you bought them.
But how are they doing now? Does your policy or portfolio perform as well as you need them too? There’s nothing more depressing than checking your assets at the age of 62, and realising they afford you the lifestyle of a celibate monk. By then it’ll be too late to fix the problem.
This is related to point 1: if you have a target IRR or similar financial goals, you’ll have a better idea of when and how to tweak your investments. Check them on a regular basis, and get some help if they’re falling behind.
For more on balancing your portfolio, follow us on Facebook – we’ll explain it in an upcoming article.
What are your retirement planning concerns? Comment and let us know!
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